I received an email the other day regarding marketing that said, “I've been doing business with Groupon and they've basically become my partner......I am trying to find ways to convert referrals to customers, but can't seem to find the right bait. It's been exhausting. I was hoping you could give some advice and help save my business from the daily deals. When we started the business several years ago it seemed like a really good idea, but since then it is though we can’t escape their grasp.”
As I read it I thought, aren’t we done with daily deals yet?
At the time Groupon reported its fourth-quarter revenue as $925.4 million.
Could it be that people were still ignoring my advice?
Or maybe I just hadn’t offered as robust an analysis as I could have...
I randomly searched several similar deal sites and found the following:
This one retailer had sold nearly 800 of these certificates before the DealSaver expired. I’ll break down the real costs of this deal to the retailer in just a moment, but first...
800 certificates sold for total revenue of $40,000.
Half goes to the deal provider = $20,000.
Cost of inventory from the vendor, assuming a keystone markup which for plants usually includes freight = $40,000.
Your COGS for running the garden center including facility, labor, etc. that still have to be paid in addition to the inventory = $36,000.
Your average garden center profit you should have received on those goods at full price (between 2-5%) depending on trade magazines = $4000.
Additional revenue needed to get to break even for the retail value generated under the daily deal = $80,000.
While researching this blog, I found a competitor who had just launched the same promotion, in the same area.
It must’ve worked for the other guys, right?
This is the danger of people sharing what works for them best-practice stories among similar dealers. If you aren’t looking at how promotions affect profits, any success is deemed successful.
Meanwhile, Groupon’s gross profit as a percentage within the local business category was 32%.
Could that garden center’s money have been better spent?
For a fraction of the true, hard costs of attracting cheapskates to their store, they could have sold what they had.
For full price.
With accessories.
To customers who value an exceptional experience.
To customers who don’t only show up when there is a fire sale.
Market to cheapskates and they’ll find ways to give the minimum from their wallet to get the maximum from your bottom line.
Take a look at these comments that followed a Washington Post article on customers coming in and only buying one item: “I never go through the upsell hassle” and “We don't buy any of the electronic gizmos and gadgets so nobody can upsell me on anything anyway. My 10-year-old Tracfone flip phone works just fine.”
These are not profitable customers to attract...
Oh right, you still don’t believe me?
How about another garden center that found out the hard way about using Groupon to market their business….
I asked Chellie Zimmerman, owner of Black Horse Farms Market in upstate New York if the money she lost doing a daily deal was real. She answered, “Yes that is REAL money LOST! Another bad thing is that your regular buying customers jump on Groupon when they would have been just as happy spending $100. Of the 500 we sold about 25% were existing customers and maybe we gained 2% as new customers.”
And from your local paper and DealSavers to a large number of online companies operating like Groupon including LivingSocial, Tippr, and more, their model appears to always be the same. They’re willing to take half of what you offer without any responsibility for fulfilling those certificate sales.
One woman I talked to last Sunday told me her friend offered a daily deal to attract new customers to her spa. She’s now so booked taking care of deals that her regulars can’t get in for two months and are going elsewhere.
So, just like I wrote in my ebook, Groupon: You Can't Afford It - Why Deep Discounts are Bad for Business and What to Do Instead, remember, “The buyer’s loyalty is to Groupon, not to you. The customer loyalty is going to their pages, their offers, their friends - not yours. Your business is just the deal of the day. After all, you didn’t give them the discount – Groupon did.”
I get it, you’re trying any way you can to get more customers in the door. But using high-cost programs like daily deals will leave you far worse off than benefit you.
Now imagine if you took a fraction of that money and invested in your own employees…
What if you trained them in how to sell so you wouldn’t settle for crumbs, but got the whole feast…
And once they were well-trained, maybe you gave them a raise?
You’d still have paid a fraction of what the can’t miss daily deals cost you.
So to answer the original business owner’s question….
I can’t state strongly enough my opinion that using daily deals as a marketing tool is not a good decision.